Zotefoams plc (ZTF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Zotefoams plc Preliminary Results Investor Presentation. [Operator Instructions]. Before we begin, we would like to submit the following poll. And if you give that your kind of attention, I'm sure the company would be most grateful. And I'd now like to hand over, if I may, to David Stirling, CEO. Good afternoon.

Good afternoon, thanks Mark. So as Mark said, if we have any questions, we will address those at the end. It's easier to think. We do have a fairly full presentation, Gary and I. So we are going to -- given the time, we're going to run through the presentation fairly quickly and save time for some questions later. So this year, 2022, a 100 year -- well, 2021, it's a 100-year anniversary actually of Zotefoams invention of the process that we used to make foam, and it's very great anniversary to be having. Just that actually kind of explains our 100-year slide on the title deck. As we move through, I'll remind everyone that we think about our business in 3 main areas: polyolefins; high-performance products; and MuCell. Polyolefin are made from low-density polyethylene and derivatives and sold mainly locally, regionally around the areas we manufacture in Western and Central Europe and in North America with a little bit of sales into Asia to a wide variety of applications, mainly industrial types of applications and very, very little goes into what you might think of as a single-use or disposable and where that does happen, it's not through our choice, it's through customer choice, but often that's medical industries where single use is designed in. Our high-performance products are made from materials that are typically difficult to form other processes. We make materials from fluoropolymers, which don't burn, elastomers, which are kind of stretching bouncy amongst other things. And the main markets there are in footwear, where we have an exclusive deal with Nike, who used the products for high-performance running. And in aviation and installation for clean rooms and biotech. The other part of -- which are sold under the T-FIT brand, by the way, the insulation products. And MuCell is our technology which is used to put bubbles foam in continuous processes. I'll come to talk about that later. It's a very small but interesting part of our group at the moment. Our strategy is really 1 of organic growth. We focus on certain markets. We try to do very well in those markets and leverage our unique technology. So having said that, where do we end up in 2021. Top line, we delivered a record well over the sales last year, GBP 100 million sales. Our profit, as you can see, has been -- is actually down, and we'll cover that later on the reasons for that. But earnings is going to follow profit with slight a adjustment to the tax charge. And we're pretty financially robust. We generate a lot of cash and our gearing ratio is about the same as last time and crucially after refinancing fairly recently. So we've got banks behind us and quite a lot of headroom. And if we look at that revenue in a little bit more detail, we see that polyolefin foams, which is the kind of legacy where the business has come from, sales are up 10% to a record GBP 56 million, slightly impacted by currency, mainly the dollar. And that's our recovery in a lot of markets, perhaps other than aviation, automotive, which are still -- get stalled last year. And it's on a base of 2020, which included a lot PPE product, we made material for the U.K. government PPE program in 2020. So the comparative is actually pretty strong. And if we remove that PPE comparative, we saw sales increasing by well over 30%. Our high-performance products sales were up 41%, 47% constant currency. Again, it's mainly a dollar-denominated business. But very, very strong growth in footwear, and that deal with Nike really delivering there. And MuCell sales up on a very small base, 32%. Our profit margins have really been impacted due to -- mainly in the polyolefin side, the significant and unpredictable and quick inflation environment that we've seen in raw materials. Gary will cover that a bit later. But effectively, we put prices up in second quarter of 2021 on polyolefins, at around the time raw materials started to rise. And the pricing on raw materials went a lot higher and stayed a lot higher for longer than we thought. And although we put in additional price increases through, those are really hitting January this year and April this year. And so the lag effect on recovering that inflation is what's dampened the margins they are polyolefin rather than anything different structurally. So that's the kind of highlights. And just to cover the kind of strategy outlook, we are a plastics processor. We sell into a lot of areas where we believe that the foams are actually the best material solution. And our customers think that we've got very good demand pool and a lot of sustainability, structural growth. We think about sustainability, we think about organic growth. And that very strong, robust recovery in the polyolefins business kind of demonstrates that, and it's fairly wide-ranging not just by market but by geography as well. We've commissioned a new manufacturing site in Poland, which is the third major foam manufacturing site. As yet, it's not fully utilized and it's carrying a big infrastructure overhead because it's the first tranche of capacity on that site in Southwest Poland, quite close to German border. But it gives us a lot of ability to serve into the German and Central European market and it gives us a lot of room for growth there. We've made good progress in MuCell development with our resource packaging. And we've kind of repositioned ourselves very slightly on sustainability. I don't think it's anything that we haven't been doing before, but just building it in, in a bit more robust way to how we conduct business, both in internally/externally, I think will be beneficial in the long term. So strategically, we've made good progress. And then where does that leave us? It leaves us with a geographical spread, business spread and industry spread, which you can see is, I think I would characterize as more representative of the underlying demand for our business than last year, which was very much -- actually last year 2020, which was very much influenced by COVID. So we can see that strong footwear growth coming through in Sports & Leisure. We can see product protection, we can see the other areas in there geographically, fairly widely spread. And again, I would say that probably the 2 markets which are not back where demand is not where we'd expect is aviation and automotive, both in transportation. So we're seeing that in aggregate, sort of 10% of our sales. I think in a more normal year, that could be 50% or even 80% higher, maybe even double would be a more normal part of the mix at this point. So still a few market headwinds there, but a very good position on the sales line. And what I'd like to do now is turn it over to Gary to talk us through the financial review and the cost margins.

Okay. Thanks, David. So looking at the abbreviated income statement first. David mentioned the sales line and the 22% growth was actually 27% if you -- if we start with the same currency rates as the prior year. Gross profit came down GBP 1.2 million, and the margin fell, as you can see, to 26% from 33%. If we actually extrapolated that same 33% onto this year into 2021's income, we would have generated another GBP 7.3 million profit. And that really is very much explained away by the gross margin impact. David has mentioned the polyolefin foams. I have a slide coming up that goes into a little bit more detail on that. And we saw that really through the whole of the year, escalating very quickly through the first half and then remaining stagnantly high. Freight cost, we didn't really see until the second half and more towards Q4. We ship a lot around the world. I have a comment section on a slide coming up. But we ship a lot. And we've seen prices move from some of the $3,000 a container up to $12,000. And when you're shipping that between the U.S., U.K. or U.K., China, it does have an impact. Energy, we hedge, and we're pretty much hedged for most of the year. But -- so we started to see that movement in Q4, and it's really 2022 that we're starting to see the bigger impact on energy. Sterling, about GBP 2 million at the gross margin level was the impact, up on that 7, I referenced relating to primarily the U.S. dollar impact about an average rate of about 7% above 2020's rate. And we brought Poland on commissioned in February '21. That's about GBP 1 million plus of additional operating cost at the gross margin level. PBT was down at GBP 7.2 million adjusted, some GBP 1.4 million below the prior year. And that includes GBP 0.5 million of currency adverse impact. As you move towards the EPS number, the primary additional driver is the tax rate. And what really happened there is partly, of course, initially a lower profit rate but very much offset by the change in deferred tax charge that we took in the year and almost a very -- a large part of it, very much a one-off primarily relates to the corporation tax change that's happening in 2023, moving from 19% to 25%. And the fact that when the government substantially enacts the terminology used, which it did in May '21, we then have to -- all business have to then apply that rate when they're looking at future changes at the deferred tax, which is specific to differences in the balance in the way we treat cost between tax and P&L and the future impact of that. So that was about GBP 1 million of impact. In addition to that, we're very prudent in the way we treat losses in overseas subsidiaries. We have losses carried forward in the U.S. New sales part of that tax group. And we don't recognize even though we expect to be able to use them going forward, we don't use them because we haven't got a history of using them in the past. So once that starts to flip, we would move into recognizing them and start seeing a release in future years. But for this year, we didn't, and that was about GBP 0.4 million deferred tax charge. That's what drives the EPS number down to GBP 9.31 . We did pay -- we are proposing a final dividend, which is 3% up in line with our progressive policy on dividends. Looking at the balance sheet. This is the first time that the balance sheet hasn't moved significantly in the last 6 or so years. And we've been on a significant capacity expansion program. We've invested about GBP 70 million over the last 7 years in our assets in both the U.K., U.S. and -- in the U.K., U.S. and Poland. And that's about 75% of our total capital spread spend. That has effectively come to an end with the commissioning of Poland. Working capital has moved up really in line with business activity, GBP 82 million to GBP 100 million sales means that you have greater receivables. We also had a little bit of an uptick in inventory related to the fact that the Vietnam plants, that take our footwear products, were shut for a period of 2 to 3 months back in Q4, and that led to the supply chain slowing down and us having to hold stuff that we would ordinarily have made and immediately got on boats and shipped out. So that's since depleted, but it was certainly relevant at the year-end. The -- mentioned the deferred tax liability or the charge, which links into the liability and post-employment benefits down, and that's really partly a result of the performance of the assets that we have as well as the higher discount rate with corporate bond yields. The result was a leverage remains at 2.1xas per last year, and that's against a leverage covenant of 3x. ROCE, a lot of ample headroom, GBP 13 million. ROCE down at 6%, obviously, not something that we are comfortable with, down from 9%, which is also a low number in 2020. The 9% actually included a [ distant ] demand in Poland. Our definition of ROCE excludes major assets under construction. So those GBP 23 million of assets were brought in, in 2021, and that mostly explains the movement down. We've put a lot of assets in. When we made those decisions, we knew that would have a dilutive impact on ROCE in the short term. but the additional capacity and capability gives us the ability to continue to grow our HPP portfolio, and we expect that to come good in due course. Just a quick comment really on financing because as at 31st of December, we had a particular specific financing arrangement. That financial arrangement expires in May '23. So at the time of signing the accounts, we would be 1 year, 1 month away. And that is considered a little bit risky for the auditors to sign off ongoing concern. So we decided to pull ahead the refinancing and actually close that out this month or a week ago. And the impact of that -- the result of that is that we've actually -- it's pretty -- a very hotly contested event. We got very good competitive pricing. We decided to remain with Handelsbanken and NatWest and actually on terms, which are ratcheted based on leverage was slightly more favorable than the terms that we already felt were very good 4 years ago. We switched our -- we switch to a GBP 50 million multicurrency last year. Previously, it was actually GBP 57 million, but term loan RCF split, so it's given us more flexibility. And the leverage covenant we've lifted to 3.5x from 3x. That's not because we expect to use it, but clearly, there's a significant turbine at times and just having the comfort if you can get it, go for it, right? And we got it, but it's certainly nothing that we anticipate targeting, but it made sense to push for it, and we were successful in getting it. We've retained an accordion of GBP 25 million. Should there be something out there we need or we see in the coming years that would necessitate that. So we've already got kind of pre-approval to -- for that side of size of funds. And very importantly, this entire deal was linked -- is linked to ESG. We haven't stated what the terms are yet and the specific targets. We will be doing a lot more of that. But I think part of the competitive nature of this deal was that we had an ESG element, which is very -- which is very much core to the Zotefoams. So it's part of what we're doing anyway, so to help explain and help demonstrate the significance of ESG to us. We felt there was a good thing to do to get it into the current loan facility. If we just -- cash flow really in a nutshell is EBITDA was pretty much in line. Cash generated operation is pretty much in line with last year. I explained the working capital, CapEx, way down from previous years, it was GBP 13 million last year, GBP 7 million this year and actually GBP 2 million of that was resource. And yes, net debt down at GBP 1.3 million. So we're still very cash generative. And the CapEx is really -- has very much returned to a steady state more in line with our depreciation charge. Just touching upon some of the key cost factors in LDPE, David spoke about the growth in LDPE, which is very much related to the AZOTE business, not our HPP business. You can see that from January '20 or towards 2021, the rapid increase, which is what we've experienced, which is some doubling of the price. It's about 60% above the average price of the past 5 years. So we would ordinarily expect that to come down to historical averages. The current environment makes it obviously very difficult to predict if that's going to happen and when it's going to happen. And indeed, at the beginning of the year, we were very much expecting these prices to come down in Q2, but clearly, events in Eastern Europe and so on have changed the environment somewhat. And actually, we saw prices go up last month for the first time in a few months. The purpose of this chart is also to show the spread. The LDPE prices really is a mixture of both the ethylene price as well as the margin taken by the producers. And what we've seen is that, as you can see that spike, you see the line, the spread has actually increased quite significantly. If you come -- if you take a look at when we were considering price rises back in March, April, our view was that the ethylene price was actually fairly normal. It was the spread, the margin that was being taken that was unusually high, and we expected that to return. So consequently, we put the price in a certain point, expecting that to stabilize and reduce going forward. Once it got to the interims, we saw that the ethylene price actually was still the same, but the spread had actually increased further. And then that took us by surprise. Again, believing that was not sustainable. We chose not to make any further adjustments to price because the impact that has on our customers and the belief that it would revert, it didn't happen. And that's really what led to then our decision from the 1st of January to put prices up further. And indeed, we're putting prices up again in April. I think -- and now we've actually -- even into the new year, we're seeing the same thing. And what we've come to realize is that actually, ordinarily, we would expect -- ordinarily Europe is a market that's quite short in supplies, who often brings in product from Middle East and Asia. And we think one of the reasons these margins are staying particularly high, is because of the COVID impacts and the supply chain issues. It is not possible to ship in products to relieve the market, to relieve demand and put and take the pressure off. And the consequence of the lack of availability of supply, plus the pricing of freight is meaning that these prices are staying sturdily high. Whether or not when that changes, we don't know, but we're certainly tracking it and we are prepared to make further price movements in the coming months to reflect that if these prices remain. Energy, 3 plants. 75% of it is the U.K. Last year, we were hedged in the U.K. for most of it. We're less hedged through 2022 because when we've come to hedging at the beginning of the year that the prices were so high, pre-Eastern Europe events that we felt they had to come down, they haven't. So at the moment, we're probably looking at an increase in total cost as a percentage of sales of some 2% to 3% on the hedge with what we have. If that continues throughout the year and into next year, we would see a slight further increase in that cost. But again, it's something that we're tracking following and considering how we incorporate that into pricing. And finally, freight and currency. Freight, really, the purpose of that box there is really to say, we've got -- we are exposed. We do ship a lot of product around the world. We ship semi finished product from the U.K. to the U.S. from the U.S. to Poland, from U.K. to Poland. And also our T-FIT business involves shipping finished high-performance products foam from the U.K. out to China and then distributing internationally. In addition, we're seeing -- what we're seeing this year, 2022, in respect of raw materials and WIP is the first increases in raw material for the HPP business, which we believe is very much related to freight costs and energy costs. And finally, as far as the FX is concerned, if you actually look at the beginning and the end of the year, they were pretty [ service ] to the dollar, which is the currency we most exposed to. The rates were pretty much the same at the beginning of the year, at the end of the year. But the story between '21 and '20 in terms of the evolution of that trend through the year is very different. And the consequences that on average rates, we had about 7% higher FX rates on dollar than we did in the previous year, and that's been something that clearly has been a headwind for us, partly hedged, but nevertheless, an impact. On that, I'll pass back to David.

Thanks, Gary. So let's move on to just covering the kind of markets and some of the different business segments. So really, I think we've got a bit more detail on the following slides, but just to remind you, polyolefin foams about 55% of sales, HPP 42% and MuCell 3% -- oh sorry, 2%. Let me talk about AZOTE polyolefin foams first. We are seeing a 10% rise in revenues that's delivered by about 4% on price, price were up in the second quarter of the year. So we look at an annualized that would behind that close to 6% price increase. The volumes grew by 6%. Our product mix improved by 5%, mainly because we're comparing with 2020, where we had about 20% of our polyolefin foam sales were to the lower price PPE market. It was lower price, it was also a single product that we run very simply and continuously through our factory. So the margins were actually pretty good on that because of our operating efficiencies, offset by a 5% negative currency movement. Where we see the growth is really in all areas. North America performed well. Continental Europe had a very strong recovery from a low position in 2020. And the U.K., absent the PPE, showed a small increase as well as the Asian market, which was not a big market for AZOTE, but that grew nicely compared to 2020. So -- and across different applications, I think almost all the areas performed well, other than aviation and automotive, which I mentioned before, those really are -- they're not a huge part of our overall business. But within polyolefin forms, they're probably around 7% or 8%, something like that of sales. So interesting, but that's not in itself going to drive that growth or make a big change in the number. The really interesting thing is as we can see, unfortunately, is the segment profit down. This is before currency hedging. So slightly better than that with a constant currency. But just non-acceptable margin at all. And if we look at why that is, as Gary explained, it was that sudden and unpredictable and very high increase in raw material costs. We have put it through prices in January and April in polyolefin forms, which would recover these margins back up to a more normal level. But bearing in mind, we are shooting at a kind of moving target with the first couple of months of the year, raw material prices coming down and then going back up again as well as other factors in the business. So -- it's an area where we need to be aware that in the short term, we can actually recover margins quite well. We cut our prices, our customers are not going to move immediately somewhere else. But immediately is the key point, often what happens is that new projects that they've got, they go looking for alternatives or they price themselves out of demand with their customers. And so you can see that 6 months or more after a price rise, if you get it wrong, you can see demand falling off. And I think that's something we try to be very careful about that when we put prices through as much as possible, those prices are designed to stay. So if we do see a reversal in polymer cost and the prices that we have put through should stick and margins should benefit normally from the price increase but falling away in polymer. So that's something we're keeping a very close eye on. We're already mulling over a third price increase this year and almost certainly that will happen. So something that we're much more active in managing inflation and taking, let's say, a more pessimistic view that the inflation will not -- polar prices, energy freight, which all are factors which can go up and down will not really reverse in the future or at least in the short term. So if we come on to HPP. We are looking at, again, remain about 42% of group revenue and sales up 41%. That is really driven by footwear and probably would have been more if raw material -- if I'm -- sorry, the situation in Vietnam had remained stable the whole year. But if you recall in the back end of at 2021, Vietnam, as a country was basically closed down because of COVID, ports were closed, et cetera. So our supply chain into -- at least part of the Nike business was disrupted there. It's not something that we expect necessarily to catch up this year. That's just kind of the way it is the reposition some of the other products. But I think an astonishingly good growth in footwear, footwear is now up at GBP 34 million. The balance of the HPP business is really aviation or T-FIT, majority of it. There are other things in there. But on the aviation business is something that's -- was the engine for growth before footwear in HPP, we were in excess of GBP 10 million, very high margins. And last year, 2021, that was only around GBP 4 million of sales. We didn't lose any business or programs, but what has happened is the build rates and planes and the inventory reduction in the system has just meant that demand through to our level is severely curtailed. So we are seeing that come back this year. Probably not to the levels that it was at peak, but somewhere in between. And T-FIT, which is our technical insulation business is something which is we believe it's got really good potential, but it's still very much a technical sale. And so when you've got a technical sale, you need your sales guys to be out talking to people, et cetera and movement restrictions due to COVID, particularly in India, which we had quite good momentum on growth has really stopped us getting out there and engaging with customers. So that's been that's been tough. And even though we have delivered 11% growth in T-FIT, I think we could have done a lot better there. So in all cases, I think very, very pleased with the overall HPP sales growth. And if you look at the margins, we can see that margins are down in part again, because of currency, margins would have been 25%. But the raw material inflation that we saw in polyolefins hasn't really, to the same extent, impacted HPP. There are more technical materials, [ that have been ] more stable. Price increases do occur. But largely, we have mechanisms to pass those on through pricing to the likes of Nike, and those mechanisms do operate, there's a bit of a lag as is normal. But the mechanisms are working. And therefore, the margins over the cycle should be fairly stable there. Talking about T -- sorry, MuCell mix. MuCell technology, we think about 2 separate business streams, MuCell 1.0, where the technology is really designed to reduce the polymer content of common plastic parts, and we would take a share of any savings. And that technology is aimed at existing products. So if you're making a yogurt port, make a yogurt port with less plastic, pretty obvious. If you look at the other side of the business, ReZorce, we've taken our technology and created completely unique attributes and therefore, an opportunity to build a unique product range around ReZorce. And that uniqueness is around how we use layers of foam and solid material to create enhanced barrier properties. So oxygen and moisture barrier, which you need in consumer packaging. And we're talking about -- that is a very big opportunity. We're looking at a number of different areas there. I'll come on to talk about that in a minute but the reality is that with MuCell again, for the last 2 years -- it's a bit like T-FIT. We need to get into the customers fast facilities, the factories to convert their yogurt port making line to something which can use foam, we haven't been able to do that. And so the business development efforts there are really -- been really curtailed. And we do have business. We have existing licenses. We have existing relationships where we sell equipment. So that's continued. But we've really pivoted a lot of our people and focus across to developing the resource technology. And that's why although the sales number has moved a little bit, the bottom line result seems to have improved a lot. Part of that is because we're capitalizing as required. We have no choice, some of the development work that people are doing on new products -- the new product line ReZorce. Okay. If we look at our kind of sustainability position. I'll start with ReZorce because it is probably the biggest opportunity we have in the businesses because it's a completely new technology that is going in the market that we need to develop or we need to replace existing incumbents is relatively high risk success. We've got a lot to do to deliver that. But we know the technology works. We know it gives the barrier properties. We know it gives a better life cycle, a better sustainability carbon footprint and alternatives. And we know that there's a lot of people out there like it. We're winning awards for all kinds of things. The brands are very interested, retailers like supermarkets, very interested for their own brand labels. But we still are not there in terms of the ability to make a juice carton or a milk carton or something like that or industrial equipment. We know that our sheet gives the required properties, we know it can be made into a box or cartons, but can it be done at high speed? Can it be done consistently with the ceiling and the sterility required to go into multi-multimillion packaging business where failure is just not an option? So there's a fair amount of work to do on that, but we're making good progress. And as I said, we've got a lot of brands and retailers, et cetera, interested. We've got a very small number of people we're working with to prove the technology. And the reason we're working for a small number of people is, everyone basically uses the same equipment, the same type of equipment to make the sheet into carton and sell it and put the capital. And so once we've proven on 1 line, it transfers very readily to others. And we'd rather work with a small number of people go deep than try to keep a lot of people happy and not move very fast. And so that's something that we've got planned for upcoming months. Those trials on potential customer's lines. And that would be the first kind of stage of value inflection that yes, we've done it on somebody's line. The next stage would be someone using it in the market, hopefully, a fairly small but visible brand to say it's commercialized. And if we can do that, then the ability to generate value from it dramatically changes. People are looking at -- would sign up, we could invest in the back of it. We could partner with people. We could license the technology, and we could sell it on the basis of it was already successful. So quite a large potential opportunity in a number of ways to create value if we can get through the next stages. It is a sustainability play. That's why people are interested. And we are, over time, really. If we look at the sustainability for the rest of the business, we really are aligned to -- or we our have business aligned to what's called the SASB, TCFD, which are frameworks to think about and report sustainability. We're looking at the internal scrap and energy use and all that sort of thing as we have for years anyway, but probably with a bit of a renewed focus. And then in terms of positioning our product, making sure that our customers know that, hey, this is a carbon footprint of our product compared to our competitors. Here's how you recycle it, here's how you deal with end-of-life, you so you deal with the scrap. And that scrap has been taken and made into other products. We can see that. We're actually making products now that use our internal scrap and trying to blend that back into our core product range for polyolefins as well as for footwear products. So a real focus on that to not just take a sustainability box, but safe cost and deliver to our customers the sustainability positioning that they need to sell the product on, so it is important. And broadly, we're doing that on 4 levels. One is to show, look, it's a nitrogen-based product, no chemicals in there and here's our efficiencies, et cetera. We used raw material very efficiently. The foams that we make use are lighter than other people using less material for the same performance. Often, our foams are used to lightweight or insulate so you're avoiding emissions or minimizing emissions. And any new product, we're thinking about the market positioning and how that stacks up is it moving us overall in a better position from a corporate sustainability position and ReZorce is a classic example of that, but certainly not the only one. And so I guess I'd just like to wrap up with key messages. I think a strong -- very strong top line performance of growth, 22% or 27% at constant currency, really phenomenal, very, very pleased. We need to do better at managing costs and margins, and we're on that right now, as you've heard, and good progress in ReZorce, good progress to commission a Poland facility, which we built and commissioned really under COVID, let's not forget that. It's not trivial at all for that size of the facility. We are currently seeing very good demand across the business. We've got price rises going through, which will improve margins. We are cautious about the macro environment and inflation. I think it's incumbent on us to do that and make sure that we understand that and understand the effects of it in our business and the customers' business. COVID is by no means gone yet, particularly in Asia. We've had the parts of Shanghai closed down, which stopped some of our people traveling, but no direct impact really from COVID on us for quite a while, but it's something that we're very aware of. And I think finally, on ReZorce, it represents a great opportunity. We're probably not in a position to start selling product and monetize it this year. But as we go through the year and we hit milestones or value inflection points, then definitely the word is coming out. So with that, I'd like to stop the presentation. I've seen some questions come in. So I'll just try to pick up those.

Yes, no problem, David. Let me just jump in, just give you a few moments as you can see, you've received quite a few. So I'll let you have a few seconds just to kind of take a look through those. But thank you to both yourself and to Gary for your update this afternoon. [Operator Instructions] Gary and David, I haven't given you a lot of time to review those questions. But if I could ask you just to read out those questions and if you could just answer as appropriate, that would be great.

I'll just run through those and read them out. And if I think you'll pick 1 up, then I'll throw it at you, have about that? So first question from Neil W. Good to see sustainability being considered. Can you outline actions you are taking to reduce Scope 1 and 2 emissions? Are those are effectively internal? And how do you aim to influence reductions in your Scope 3 emissions, that's the emissions that our customers have as a result of using our product? And explain your strategy towards product end-of-life? So firstly, Scope 1 and 2, I think is a continuation really of a lot of work we've been doing over the past few years to make sure that -- we understand that the products we buy, what the carbon emissions are from those and how we can minimize those through choice of supply or supply chain. Scope 2 is really about our internal emissions. And so the biggest thing we can do there is produce product more effectively, reduce waste so that we're not running machines to produce scrap -- scrap costs themselves. We're investing in better heating controls, like our gas boiler or control systems have been upgraded significantly reducing gas consumption. So a wide variety of things here. And one of them is around process control. So like managing and measuring every kilogram of material we buy and kilogram of material we sell and really understanding what's the difference? Where does the scrap come from? I'm trying to minimize that. And where we have got scrap to repurpose that through grinding it up and putting it back into a different product and selling that. So we're using that around dumping that. And that's something that's kind of an ongoing process. And then with our customers, really educating them about what's the difference between using our product and someone else is. If you can use our product and it's 20% lighter, that's using 20% less raw material. Why is that important? Well, what does that do to your carbon footprint, okay? So 1 kilogram of foam is roughly 2 kilograms of carbon. So if you're thinking about your downstream and selling on to your customer. Hey, if you start with the Zotefoams product, you're using less -- starting with less of a carbon footprint, okay, so it's that beneficial. We've been helping people calculate sustainability savings like insulation, you put our installation on, here's your energy saving, okay? That's obviously pretty straightforward calculation. But when it becomes complicated is that we don't know all the alternatives they've got insulation BCD. And so therefore, what we have to do is we have to show them how to use ours and our methodologies. And if they want to compare it with someone else, then fine, we find that largely, very largely, we come out very positively in these types of comparison. So it's a journey, and you mentioned end-of-life, basically, we and all of our customers pretty much all the scrap that's produced in our process and our customer process is repurposed in some way. Where the difficulty is an end of life is, I don't know if you have a training shoe or a plane or something, how do you collect that and get it back to a recycling facility separated out from the rest of the plane and the rest of the shoe. It's difficult. But that's a problem that's being -- let's address by those customers, by Nike and boeing or whoever not necessarily by us. But if we got that end-of-life product, we can advise on how to deal with it. So I hope that's a fairly full answer. The next question is -- gosh, I don't know the answer to this one. Why do you think your share price does not reflect the achievements you have made to take record revenue, Poland, U.S., Nike unique technology, et cetera? Surely, disconnect may entice unwanted corporate interest. Well, I mean, I think there's a very uncertain borrowers out there and the share price can be volatile. So I think any director always thinks share price is a bit low. But 1 thing I can assure you of is the Board is very, very well aware of the technology we have, the opportunities we have, the strategic plan and if somebody rolls around the corner and say, well, I see your starting price is this, how about a small premium to buy you? The starting share price is certainly not the only factor. It's always a factor, but we're really looking at the business from a long-term viewing of what can we deliver. So I don't think there's any intent to let somebody sneak Zotefoams in terms of some corporate interest based on our share price at any particular time. So Gavin L, seems you're afraid of your customers' reason for the late price rises. And I've got 1 other -- sort of 1 other -- oh yes, here it is, well, Gavin. what is that surcharge on your price when you can remove? So I think we're largely talking about polyolefin foams business here. And I think we have to understand probably or explain to you better 2 dynamics that perhaps are a bit more detailed. The first 1 is that typically, our customers in polyolefin foams have hundreds, if not thousands of customers for their products. And so if we give them a price increase and they have to pass it on, they are talking to hundreds of thousands of customers and that can be very difficult for them. And particularly, if it's a price surcharge that goes up and down, it can be very, very difficult for them to manage, they absolutely loathe it. They want stability of pricing, so they can get on with doing their business. And typically, foam to them is a very, very large part of the input cost. It's highly material. And I don't think I would say that we are afraid of our customers, but we do recognize that there are a number of factors to making a profitable business in Zotefoams. We have high fixed costs, and therefore, obviously, you need to set an amount of volume or utilization of your asset to be profitable -- and if you destroy demand by price increases, which are too high and our customers lose business, then that's not in anyone's best interest. So it's to try and get the balance there. We can always -- our prices in the short term, pat ourselves on the back, because our margins will be fine. The customers will just suck up in the short term. But what happens is that they or their customers will look for alternative solutions going forward. And that's where price elasticity comes in. It doesn't come in on day 1, it comes in on day 200, and you see that projects that you would normally have been on don't exist anymore or they have been redesigned with something else. And so I think if we all know where inflation is and it's at a stable level, we've got prices up, everyone's in the same position and market demand overall may move, but we know where we are. It's when the inflation is volatile. Sometimes it's up, sometimes it's down. Polymer prices, energy, these are classic examples where we don't think that the prices today reflect long-term trends. And so we want to have that relationship with our customers to balance the short term and the long term. Having said all of that, I think we got it wrong last year. I think we waited too long to put prices through and we believed, along with everyone else, that the inflation would be transferring over a very short time, not going to transfer over a medium term. And we'll revise that opinion, and we are looking at price increases this year, which are less price permanent increases. We're also looking at some sort of surcharge in some areas, but I know that's going to be very important to the customer. So we -- that's up for debate at the moment. We're engaging with customers on that, okay? So I hope that covers both of those questions, Gavin. I think our next question is from Chris. Does your agreement with Nike have any cost pass-through? The answer is yes, simple. There is a lag because we need to understand what those costs are. But effectively, Nike is repriced automatically. No question. Might be a dollar reporting PLC help, Gary?

It wouldn't help me and my team. That's for sure. That's a lot of work. But no, I mean it's certainly something that is deeper the back of the mind. The fact is at the moment for 3/4 of our operating cost is U.K. or euro, right? All of our polymer into the U.K. is euro. The U.K. plant, which is the lion's share of the business is sterling cost base. So you really just be switching to another problem. And so at the moment, with the scale we're at, I don't believe that's necessarily the answer.

Okay. Thanks, Gary. A question from Matthew R. Can you comment at all on the development milestone we should look out for ReZorce and the size of the market opportunity? So size of the market opportunity first, I think cartons today just a material going into cartons about $10 billion. Pouches similar or maybe a bit higher for barrier pouches. So a huge market. And the market size, by the time you get to that is sort of quantum, the market size is irrelevant. I think you feel that okay, what do I need to do to get in there and grow. And the milestones for us are take that sheet we've developed to put it through a commercial filling machine, make sure it's sealed properly, reasonably high speeds and high volumes. So we need to do 5,000, 30,000 to 100,000 units over a couple of days to make sure they're sterile, they're sealed properly, et cetera. And then after that, the next milestone is get someone, a brand probably, to use it and to give us some volume to -- so that we can set it in market. So those are critical milestones. And as we can do those, then we have a very interesting business. So a question from Michael. How much further do you see the footwear segment of HPP growing? Obviously, aviation is coming back, but are there any new scalable HPP applications you feel may drive revenue examples would be great? So footwear first, so we've kind of signaled that we expect footwear this year to be similar as to last year. That's mainly because Nike Running kind of work in a 2-year cycle. But I think realistically we are probably, with the Running guys, we've got limited options for growth, I would say, with our current positioning and technology. There's only so many high-priced running shoes that we can be in. And if you look at the lower-priced ones, they are -- they're not going to benefit -- the way they sell them is not based on performance, where our products are designed is based on performance, it doesn't fit, okay. So we may get some like-for-like growth in that market, but it's unlikely to be very high. Having said that, there are other segments within Nike that we are working on. So we've been developing foams for other parts of a premium running. We haven't said to anyone that has been successful yet. If it's successful, and I think we will be, but that's up to Nike, not me. If we're successful, then we would expect to see that in 2023 earliest really, not much this year. So -- but there is quite -- potentially quite sizable market there that we could access within other segments other than premium running at Nike. Obviously, aviation is coming back, yes, it is. I think this year won't be as high as the peak year. But might be kind of halfway in between. So good growth expected this year. And are there any other new scalable applications? Yes, we're always working on these. We've probably got a portfolio of a dozen or so 7-figure applications. If we look at the probabilities for those, all of those could generate nothing. That's just the reality to that type of business. But if I look at the ones which look promising, I'd say that e-vehicle battery installation is one that we've got an awful lot interested here at the moment. It is a very technical solution. It is something that there are a lot of competing solutions out there. But we're getting a lot of interest from more than one person and the kind of triangulating into something that looks like Zotefoams is the best solution. So that could be something which really has legs over the next few years. And as usual, with these things, I'll say that's what I think -- I'll have a meeting on [indsicernible] and someone will tell me that's dead and another part of the portfolio was taken off. But that's why we think about our technology as kind of flexible based on common assets and common skills cum people because we are a full, we're part of a solution, we're not the solution. And so we need to be able to work with other people and work with their agenda. So -- but yes, I would probably go for e-vehicle battery installation if I had to pick one. Another question from Gavin, ReZorce, does the packaging industry want you to succeed or just using to bash Tetra Pak? God, I think about both. I think the brands and the retailers are the guys that really want to bring a lower carbon footprint solution. The packaging industry I think some people may win, some people may lose if we are successful. But I think obviously, people like Tetra Pak, if we start trenching into their market share, I don't -- I think they're perceived as being quite domineering and things like that sometimes. So I think there will be people that are very pleased to move away from -- I don't think there's much love for Tetra Pak in the customer base. But it's still out there, people are commercial animals, so it's not a reason to move because they don't like somebody but that's the feedback we're getting. So the next question from Andrew, are the potential customers with whom you're trying ReZorce existing customers or new customers? New customers. They are specifically in the consumer packaging industry for cartons or pouches, so new customers. Peter W. Please now, asked, what extent raw material prices have been affected by genuine supply issues as opposed to speculation? I asked this question because it looks at some of the graphs that the OEM or minimum margins increased versus prior year as this genuine reason of profiteering. So that spread that we show is the cost of taking ethylene, the raw material for polyethylene and turning it into the plastic. So that's what they charge. And on average, over the past 6 or 7 years, it's been around about EUR 250, maybe EUR 300 a tonne. And it's substantially more than that. It's up the peak -- that peak, it was up at EUR 900 a tonne, they were charging. So absolutely, profiteering levels based on -- but that's typical of a kind of commodity supply-demand imbalance. You get -- whether it's copper or aluminum or oil or something the prices sometimes just spike up and come right down. And what we're seeing there is that there's a shortage of capacity to turn ethylene into polyethylene. And as Gary explained, not helped by the fact that the normal market forces would bring some polymer in from the Middle East. But because the freight has been expensive and the freight is not working very well. That's really jammed up and is allowing that very high level of polymer pricing. So typically, when you're making supernormal margins, it doesn't persist. But there is a raw material input cost, the ethylene, which is based in oil or gas, which is obviously something we need to keep an eye on at the moment as well. John L, why do you have contracts not for pass-through clauses? Polyethylene -- the polyolefin foams are not sold under contract. We have price lists, we can put the prices up or not, people can move or not. That's typically not the way the market works. Our HPP products are pretty much sold with contracts, supply contracts and they have pass-through clauses. So that's why. Another question from Peter. He asks, which customers and sectors are likely finding it the most difficult to cope with price increases? Have any customers walked in with their feet and stop supply from the company? Well, I think there are certain industries which are sort of more allergic to price increases than others such as automotive. You try to put the automotive prices up where it is like, no, we want to decrease. I think even the automotive guys have accepted that this is a one-way street and prices are going up. So -- and at some point, you just get to take or leave it. If you don't have the price increase, we are not going to supply you. And has anyone walked you with their feet, actually very few. But as I explained earlier, the propensity for people to change their decision based on your price today is people will not change the buying decision. What they will do is for new projects that they're working on, they will use another material if they can or their customers will walk away. And so when you put your prices up, what your risk is a lovely period of 4 to 6 months, but everything looks okay, and then you've got no demand left as your customers -- that's when you see they've walked out, and you don't always know that the new projects are not going to you until it's too late. So we are very well aware of that. And we're also very well aware that in today's market, energy prices are going up, affecting everyone or industrial producers. Polymer prices are going up, freight is going up, inflation is ramping. I don't believe that the industrial or any other economy can really have all these things happening and demand not be impacted. There must be some level of demand drop off due to inflationary factors. And therefore, we -- and pricing have always got to think about the second half of the year, right. Can we keep enough people onboard to make sure that if as a market adjustment and demand overall drops off that we are not overly impacted by that because there's no point having a price increase, we could double the prices of no volume, you don't look very clever because you're not. And so it's always -- it's always a negotiation and really negotiating with your customers, there is no better time to get information on how their business works or who their customers are or how they sell because they start giving you this information to help you understand why you can or can't take price increases on certain products or not. So it's a very fertile time we can engage with people if you just come around and say, take or leave, it's a big risk. So I think, as I said, I think we were -- we got it wrong last year. I think we were overly cautious. I think we're -- we address that now, and we're being more robust. And -- but -- and specifically in polyolefin. But we are also keeping a very close eye on what's happening to those input prices because that's still a significant factor here. Okay. question from Neil W. Poland has been operating for about a year now. What's the current capacity utilization rate? We're slightly over 50%. We think about Poland as part of our group capacity. We can still pull it up today if we move some business from the U.K., that doesn't help anyone. So what we're doing is we are growing that business gradually making sure that as we go from 1 shift to 2 shifts that the guys are properly trained, the customers are being transitioned at a sensible pace and the product range they're making is being transitioned at a sensible pace. So pretty much on track from where we want to be on that. Next question is from David. To quantify Unilever Dove never materialize at scale. And from memory, you needed more technicians to explain how. So if I can -- so Unilever Dove, we use MuCell technology to reduce our bottle material content by about 15%. It was very successful. Technically, it was successful in the market. Nobody noticed a difference. Unilever saved a bunch of polymer. But it was one factor that hadn't actually been considered, which is that the way Unilever buy more tools is they buy it, and this is strange, raw material cost plus the margin, okay. And because we reduced the raw material content of the bottle, the bottle suppliers' margin, the amount of profit they made went down. And instead of keeping the margin the same and paying the producer the same margin, Unilever insisted in material cost plus a percentage margin. So they gave the producer 15% less margin for making those bottles. And that completely screwed up the whole rationale. So everyone was aligned from the chief executive, sustainability people at Unilever all writing about this now in report and the procurement people didn't get onboard with it. We made short-term savings. And as a result, nobody ever wanted to do that again. So ridiculous situation. And I don't quite know what to say about that really. But Unilever never really successfully rolled out because they didn't treat the suppliers properly.

David, I might jump in at this point because I think we're now an hour and 20 minutes through and you've taken the -- you know you've been very generous with your time and answered every question from investors. So thank you to everybody who has submitted questions this afternoon. David, I know this is the first of our roadshow and I'm sure you've got a full set of meetings after this. So if I may just ask you for a few closing comments before I redirect investors on the call to give you their feedback.

All right. Look, I think -- it's obviously a very interesting time for the world and the business. We feel that we've got a lot going on. We've learned a lot over the last 2 years about our business, about flexibility and our direction of travel. We think we're well positioned. We've got a few challenges to overcome, but we know how we're going to do that. And we're looking forward to sunny uplift or sun-let uplands or something whatever the phrase is. But I think we are optimistic about business but we are kind of mindful of the economic situation right now. So we're not getting overly optimistic in the very short term. But we've got a great portfolio of products, a good management team. And I think we're -- good potential to perform very well. So thanks for your support.

That's great. David, Gary, thank you very much indeed for your time this afternoon and for updating investors. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback. In hope the management can really better understand your views and expectations. This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team, Zotefoams plc, we'd like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.